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STRATEGIC MANAGEMENT

1.SUBHASISH RANJAN DAS 2.RAJNISH BHARDWAJ 3.ANADI ANAND 4.NIVEDITA NANDI

CASE : THE CHANGING BOUNDARIES OF AT & T 1995-2002

In 1995: Split of AT&T

AT&Ts Global Information Solution

Manufacturer of computer systems

Manage the companys long distance, international & wireless telecommunication business

AT&T
Network equipment business Lucent Technologies

New AT&T

+ Factors led to the split

Impending deregulation of the U.S. telecommunications industry Privatization of the state-owned telephone companies Deregulation of foreign telephone markets Rapid change in telecommunication business as new technologies ( wireless communication & internet) crept in.

opportunities

Possibility of building a truly global telephone network by forming alliances with newly privatized telephone companies & by entering foreign markets.

Issues +

Performance of computer & network businesses suffered as result of association with AT&T tried to sell products to MCI , Sprint and RBOCs. As a result the customers were reluctant to purchase from the suppliers competitors. AT&Ts computer business was unable to establish a profitable computer operation:

loss of billions of dollars trying to establish a presence in the personal computer market through an internal new venture(1980) acquisition of NCR turned out to be a disaster

Present situation

No direct access to its customers

Used the phone lines of local phone companies to originate and terminate calls for its long distance customers As a result: had to pay a termination fee (35% of the cost of every for every phone call made) routed through their lines to the local phone companies

Only option left.

Use of coaxial cable to originate and terminate calls to residential customers thereby avoiding the termination fee and saving substantial costs.
Avoid paying access fees to local phone companies(RBOCs)

NEW ACQUISITION

TCI
AT&T
MEDIA ONE

Discovery after acquisition

Cable strategy did not work out as planned

It would cost billions of dollars to upgrade the cable TV systems in order to handle the phone calls. AT&T took on $56 billion in debt to finance the acquisition of TCI &Media One ,so, with billions more needed to be spent, AT&T concluded that it would not be able to generate sufficient income from these assets to cover the cost of additional debt

result

CEO decided to cut the companys losses & sell the cable TV assets to the highest bidder.
Comcast-cable TV company which paid AT&T $72 BILLION FOR THESE ASSETS.

Many observers felt that the original strategy was sound, and the decision to sell was a long-term strategic mistake. As an update, although AT&T agreed to sell its broadband services to Comcast, in February 2002, the firm began a move to instead merge its broadband unit with Comcast, with two-thirds of the voting stock in the new firm to be controlled by AT&T. It seems that AT&T reconsidered its decision and decided not to sell assets that might potentially be valuable.

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Changes in AT&T that triggered the company to break into 3 entities

There was an impending deregulation in the US telecom industry State owned telephone companies around the world were privatized There was a rapid change in the telecommunications business as new technologies, such as wireless communications and the Internet, created significant opportunities and threats for AT&T.

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How the breakup created value for shareholders
The breakup created some value for shareholders. AT&T has done well. Lucent Technologies had an early period of high performance, which has dampened somewhat as demand for networking equipment is down. On the other hand, AT&T Global Information Systems has seen performance fall even further since the breakup. Prior to the spin-off, shareholders only own the parent company's stock, whereas after the spin-off they own shares in both the parent and the subsidiary

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Does the breakup implied that pre 1995 Strategic Vision was seriously flawed
Not necessarily. AT&Ts strategy was probably justifiable during the 1980s and early 1990s, even though its venture in the computer business was a disaster. AT&Ts strategy needed to change because its operating environment had changed drastically, thus, its new strategy had to respond to the new opportunities and threats. AT&Ts old strategy became obsolete due to the dramatic changes in its environment. This does not imply that its pre-1995 strategic vision was seriously flawed.

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Was the strategic rationale for acquiring TCI and Media One sound? If so, why did AT&T reverse course and sell off its cable assets in 2002? How might AT&T have handled this whole episode differently?
AT&Ts decision to sell their cable assets came about because revenues from broadband did not grow as fast as anticipated, due to low consumer demand. Also, AT&T may have been unwilling to make the capital investment necessary to fully implement their strategy. When expenses appeared to be high and revenues low, the company was put under pressure from investors to raise short-term profits, and thus decided to sell.